Temenos (VTX:TEMN) Has Announced That It Will Be Increasing Its Dividend To $1.20

Temenos AG (VTX:TEMN) will increase its dividend from last year's comparable payment on the 14th of May to $1.20. This will take the annual payment to 1.8% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Temenos

Temenos' Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Temenos' dividend made up quite a large proportion of earnings but only 40% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS is forecast to expand by 71.3%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 42% which would be quite comfortable going to take the dividend forward.

Temenos Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the annual payment back then was $0.392, compared to the most recent full-year payment of $1.36. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Dividend Growth May Be Hard To Come By

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. In the last five years, Temenos' earnings per share has shrunk at approximately 5.1% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On Temenos' Dividend

Overall, we always like to see the dividend being raised, but we don't think Temenos will make a great income stock. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Temenos (1 is a bit unpleasant!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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